You Should Be Terrified! U.S. Is In A Debt Trap & Oblivious to the Consequences

There exists in the Congress, in the Obama administration, in the media and on Wall Street, a national belief that America can print paper money and grow its economy as its route map out of debt. With annual GDP growth expectations of 2% to 3% over the next several years, this is a completely false hope!

So write Christopher Funston & Ian A. Gordon (LongwaveGroup.com) in an article* originally entitled Desperate Acts to Retain the Paper Monetary System going on to say:

Within the current global economic environment, central bankers – of the world’s developed economies and those of emerging markets alike – remain obsessed with the struggle to incorporate monetary policies which will engender renewed gross domestic product (GDP) growth in their respective economies. These central bankers have been led by the example of the U.S. Federal Reserve, whose implementation of a multi-year quantitative easing program, i.e. the $4.5 trillion (U.S.) purchase of U.S Treasurys and mortgage-backed securities, has been coupled with the maintenance of historically low administered interest rates; such as the present 0% – 0.25% range for the Federal Funds Rate.

Complicating the global GDP growth challenge has been the persistent increase in the debt levels of many sovereign credits, once again led by the United States, whose national debt level now exceeds $18 trillion (U.S.) – that’s $18,000,000,000,000 (U.S.).

The Folly of Elastic Money

In his book Paper Money Collapse, author Detlev Schlichter recounts how the recent financial crisis has exposed the instability of the global financial system. While there is always plenty of talk of reform, only a few economists are yet willing to consider that the root cause is the limitless supply of paper money.

All paper money systems have either collapsed in chaos, or society has returned to commodity money – usually based on gold – before a total currency disaster occurred. Such controversial conclusions clash with today’s general consensus that elastic state money is superior to inflexible commodity money. Moreover, the majority of economists believe that expanding the money supply is harmless or even beneficial as long as the inflation rate remains low. A great many people working in the financial markets, in the media and in monetary policy positions are unwilling to appreciate the underlying problems with elastic money and the danger it presents.

The U.S. Dollar’s 70-Year Dominance Is Coming to an End

In a recent Daily Telegraph article, journalist Liam Halligan wrote: Seventy years ago the Bretton Woods agreement marked the moment the dollar’s unquestionable supremacy was secured. Since then, global commerce has been conducted largely in dollars and leading economies have held the greenback as their primary reserve currency. The same system remains intact today, with the lion’s share of commercial settlements worldwide still clearing the U.S. banking system; even if the parties involved have nothing to do with the United States. Meanwhile, the dollar’s hegemony continues to be cemented by the operations of the International Monetary Fund (IMF) and the World Bank. Founded at Bretton Woods, they are both Washington-based and controlled by America. The advantages this system bestows upon the United States are enormous. Reserve currency status generates huge demand for dollars from governments and companies around the world, as they are needed for reserves and trade. This has permitted successive American administrations to spend far more than is raised in taxes and export revenues, year-in and year-out. [As such,] America doesn’t worry about balance of payments crises, since it can pay for imports in dollars the Federal Reserve can just print. Indeed, Washington keeps spending willy-nilly as the world buys ever more Treasurys on the strength of regulatory imperative and the vast size of the U.S. debt market.

A Nation in the Red

In his book of the above title published earlier this year and which focuses on the U.S. government debt crisis, author Murray Holland concludes: Our government debt is rising every day. Our population is shifting as more people retire and fewer are able to find work. Our social programs, including the Affordable Care Act (Obamacare), are not only adding to our financial burden, but are also hindering our domestic economic growth.

Firstly, the concept of repaying $18 trillion (U.S.) in debt is not even a remote possibilityover the next 100 years even if the government produced small surpluses.

Then, because the country is recording such large deficits, the national debt is increasing and getting worse, indeed much worse.

In addition, the government has approximately $70 trillion (U.S.) in unfunded liabilities which must be resolved. This means it needs to either decrease the benefits – primarily under Medicare and Social Security – or to increase taxes, or both.

Pray that the market for the national debt remains open so the United States can keep borrowing to repay the money it previously borrowed and then, the government will have to re-borrow to repay the money it just borrowed.

There is no chance the bond market will not change its demeanor over the next 100 years. It will certainly experience periods of higher interest rates and bond yield levels. It will also witness times of lack of demand for Treasurys, due to economic pressures and geopolitical events around the world.

Even under the Obama administration budget deficit trend, interest expense for outstanding Treasury issues will exceed $1 trillion (U.S.) a year by 2022.

The scenario of worse-than-projected tax receipts for the government, along with considerably higher than disclosed liabilities, is a recipe for disaster for the United States.

Conclusion

If you are not terrified at the thought of the collapse of the United States, you should be. Almost everyone in the world will be negatively affected, particularly the poor…

The above post is presented compliments of www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

The next time someone says, “The US is the richest country on Earth” correct them and state that “The U.S. is the most bankrupt and indebted country in the history of the world” because that’s reality. Let me explain. Read More »

We’re doomed! Even if the economy were growing at a faster pace, it wouldn’t come close to offsetting the interest payments on our ever-expanding debt. As such, any sort of credit shock – either rising rates or a decline in the rate of debt expansion – will cause the system to implode. Let me explain why that is the case. Read More »

There is too much debt. Debt works the same way for a country as it works for an individual or a family, which is to say if you borrow too much, then your life basically craters. Everything gets harder to do, and you end up doing things in order to deal with your past mistakes that you would never do normally. You start trying absolutely crazy things, and that’s where the world’s governments are right now. We are doing all these things that are essentially con games and getting away with it so far, because a printing press is a great tool for fooling people. I don’t see how we can get away with it too much longer. Read More »

For the first time in U.S. history, the national debt has risen past $17 trillion. That number is a bit hard to comprehend and means little to Americans when not applied to their everyday lives. So just how does the national debt affect consumers, and why should the average American care about how much this country owes? Here’s why and how. Read More »

Our monetary system is guaranteed to collapse. The central banks prints money like there is no tomorrow. The governments spends like a drunken sailor and yet inflation is benign and interest rates sit at generational lows. Banks are gaining in profitability while their bad debts are being erased by rising asset prices. What’s not to like? Plenty! This article goes into the details of the money creation process to understand how and why this is happening, what the future implications will be and how to best invest to protect oneself from these eventualities. Read More »

Government fiscal policy – profligate spending, leading to debt crisis, leading to currency crisis, leading to…the fall of the U.S. dollar – is the major cataclysmic endgame that is going to befall the U.S. Read More »

History strongly suggests that, rather than a return to a nice, placid world of “normal” interest rates, we are likely to see a continuation of the borrowing binge/asset bubble until real rates spike as a result of either soaring nominal rates soar or plummeting inflation. Here’s why that is the case. Read More »

A temporary period of deflation will result from the end of the Fed’s massive asset purchases followed by a period of inflation that will make the ’70s seem like an era of hard money. Here’s why. Read More »

There have been many econoblog posts of the form, “ha, ha, the people predicting inflation have been wrong so far, when will they give up?”. Let me try to explain why we know high inflation is coming eventually. Read More »

I read hundreds of financial articles every week and most are nothing more than “financial entertainment” – unfounded forecasts, fear mongering or cheer-leading. That being said, there are a number of articles that are absolutely MUST READS if you are to become an informed investor and be in position to understand what is evolving in the financial environment and act accordingly. Introductory paragraphs and links to a number of them are provided in this post. Read More »

DISCLOSURE: It is our intent that all posts on this site be in accordance with the requirements, restrictions and terms of the Copyright Law of the United States and all other copyright treaties to which the United States is party and more specifically of the Digital Millennium Copyright Act - Blogger . As such, all posts on this website have been screened at Library of Congress Catalog as to their eligibility for posting. Should any post be deemed to be inadvertently in contravention of these Acts' terms please advise with substantiation of such apparent contravention (i.e. registration number) and the article in question will be immediately deleted from the site. Also, visit U.S. Code 17-107 Limitations on Exclusive Rights - Fair Use

FAIR USE NOTICE: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of financial, economic and investment issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

COPYRIGHT & DISCLAIMER: Lorimer Wilson is not a registered advisor and does not give investment advice per se. The articles to be found on the site are expressions of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. Please consult with a qualified investment advisor who is licensed by appropriate regulatory agencies in your legal jurisdiction before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments. The information on this site was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that while Wilson may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website they do not intend to disclose the extent of any current holdings or future transactions with respect to any particular security and, as such, you should consider this before investing in any security based upon statements and information contained in any report, post, comment or recommendation you read on the site.